Crude shock lands Chinese oil majors on a slippery slick

A PetroChina worker at a gas station in Hangzhou, Zhejiang province.[XU KANGPING/ FOR CHINA DAILY]

"Under such circumstances, ensuring the country's energy security is their major task, while higher returns from overseas investments become secondary," he said.

Also, lack of experience in international operations and inappropriate estimates have put the Chinese oil companies under huge pressure. They realized, rather late in the day, that their overseas deals were overpriced.

Gao Jian, a crude oil analyst at commodities consultancy Sublime China Information Co Ltd, said the State-backed companies, when they were snapping up overseas oil and gas assets before 2008, were confident they were getting good bargains. But crude oil prices fell by more than half in 2009 after the global financial crisis.

It started to plummet from $140 a barrel in 2008 and reached $70 in 2009, when China's oil majors were picking up distressed overseas assets. Since then, the crude price descent has continued and, earlier this month, fell below $29 per barrel, the lowest in 12 years.

No one was able to expect that the crude prices would continue to fall over such a long period of time, Gao said. "Crude price is not expected to see a rebound in a short term, not at least for this year and next year, as the level of global oil stocks is already at its peak this year."

Oil stocks in member countries of the Organization for Economic Co-operation and Development, a key indicator of whether the world oil market is tight or well-supplied, already hit the high mark of 3 billion barrels, according to estimates.

As a sharp decline in international crude prices hit upstream earnings, China's oil majors saw their profits slump in the first half of 2015.

But experts said companies such as Sinopec that span the whole industrial chain－that is, both upstream and downstream－would probably suffer less than those that focus only on oilfields.

Gao said Chinese firms need to be prudent in the future and have stricter assessment of investment risks to ensure expansion would not compromise profits.

"If you look at the overseas investments in the past decade, some of them were very irrational, but I don't think it is a bad time for Chinese companies to continue their overseas spending, as there is still a good chance for them to find good deals," he said.

Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 percent fall to $595 billion in 2015, according to Oslo-based consultancy Rystad Energy.